By JONATHAN SCHLEFER

February 17, 2014

CAMBRIDGE, Mass. — A. Michael Spence won the Nobel Memorial Prize in Economic Science in 2001 for esoteric research on how people make decisions when critical information is hard to obtain. But by that time, after more than a decade and a half as an academic dean at Harvard and Stanford, many of Mr. Spence’s colleagues had begun referring to him as a “former economist.”

Mr. Spence, who turned 70 last year, begs to differ: He learned to become a better, “older” economist, he countered.

With his background in studying information, he began thinking about how the Internet, compressing time and distance, would strengthen supply chains around the world. In 2005, the World Bank asked him to give the keynote talk at its annual conference on poverty reduction. Worried that he had little useful to contribute, he balked. “Why would you want me?” he recalled asking.

As it turned out, that talk, which “seemed not to bomb,” led his career in a new direction, prompting the World Bank to name him chairman of its Commission on Growth and Development in 2006. He chose 19 former planning ministers, finance ministers and business leaders to join the group — but only two economists, the Nobel laureate Robert M. Solow, who “probably knew more than anyone else about growth,” he said, “and me, who didn’t.”

He seems to have learned fast. In recent years, Mr. Spence has become something of an expert on the Chinese economy after being invited by Beijing, along with Edwin Lim, a former chief World Bank representative in China, to put together an unaffiliated advisory group, supported by the Cairncross Economic Research Foundation. The group has met intensively with the Chinese government’s key planning and economic officials and conducted what those officials have called an unprecedented study of China’s development challenge.

While Mr. Spence has come away impressed with how “curious and open” Chinese officials are, he also doesn’t mince words about how serious China’s problems are.

With the global economy increasingly dependent on China, the danger is that the nation is “on a collision course with its own growth model,” he said in an interview. The Chinese must move beyond low-wage exports and “generate a fair amount of demand domestically, or they’ll fail.”

China faces a daunting challenge called the middle-income transition, where developing nations have repeatedly stumbled. Since Japan rebuilt after World War II, only the Asian Tigers — South Korea and Taiwan and the city-states of Singapore and Hong Kong — have made it from middle-income status generating, in today’s dollars, some $10,000 in economic activity per person to high-income status of $20,000 and above.

In the modern era, poor nations have often found that the most effective strategy to jump-start their economies is to specialize in low-wage exports, tapping vast global demand. But the middle-income transition, Dr. Spence argues, requires a much more sophisticated economic policy, with nations gradually moving up the ladder of producing more complex industrial goods, and, importantly, strengthening domestic demand for consumer goods.

Moreover, an export-led strategy no longer can rely on nearly insatiable demand from the United States, as the Asian Tigers could through the end of the 20th century. Stagnant economies in Europe and Japan limit global demand even more. China therefore faces unusually harsh pressures to increase the buying power of its own consumers if it wants to make the leap to a truly prosperous nation.

This is a fairly conventional Western view of the Chinese economy. But what was surprising is that it was a central theme of the no-nonsense 2011 report prepared under Mr. Lim and Mr. Spence — and that Beijing published it not just in English but in Chinese for domestic consumption. Further discussions in 2013 helped Liu He, a top economic adviser to President Xi Jinping, and his colleagues formulate major reforms approved at a Communist Party plenum in November.

Barry J. Naughton, professor of Chinese economy at the University of California, San Diego, says that Mr. Spence deserves some credit as he “has encouraged top Chinese advisers, and maybe even helped them think up these ideas.”

The 2011 report (another based on the 2013 discussions will be published) details a host of problems: steadily worsening income inequality and a reduction in the amount of economic activity going to wages from two-thirds of G.D.P. in 1980 to barely half today. It laments an “enormous” three-to-one disparity between urban and rural wages, and worse disparities in health care provision, a fragmented school system and poor social services.

The report calls for reversing these troubling trends, thus both strengthening domestic demand and pressuring firms into more innovative, productive sectors. It also calls for exposing huge public sector banks and often inefficient state-owned companies, controlling more than half of China’s fixed investment, to more market pressure.

Though the Lim-Spence group includes many economists, its recommendations step outside well-known economic models. Those models say plenty about exposing firms to market pressure and something about supporting short-run demand. But they say nothing about the long-term global demand deficit that Mr. Spence worries about or China’s need to deliberately shift the composition of demand.

Nonetheless, these are coherent ideas based on experience, Dr. Spence argues. The need to tap long-run demand can be seen at work in poor countries that export into the global economy, and they surely apply in different ways to advanced nations. But clarifying such ideas in formal models belongs very much on economists’ “to do” list, he says.

But just because top officials in China have endorsed an economic reform agenda doesn’t mean they will actually adopt it. Lots of Chinese are saying, “we’ll believe it when we see it,” Mr. Spence said with a sigh. China’s 11th Five Year Plan (2006-10) also called for strengthening domestic demand, but it weakened instead. In 2000, private consumption accounted for 46 percent of G.D.P., but by 2012, it had fallen to a mere 36 percent of G.D.P.

The November party plenum called for some 20 percent of the Chinese population to migrate from rural to urban areas, where wages and social services are far better. But cities are starved for taxes, so they increasingly turn to real estate ventures and borrowing via “financial vehicles,” notes Anthony J. Saich, a China expert at the Harvard Kennedy School. Cities will not even provide schooling for children of millions of rural migrants who lack official residency permits, and they resist issuing more permits.

The profits of state-owned firms, today almost wholly reinvested, would seem to be a natural revenue source. The November plenum called for channeling 30 percent of profits into government coffers. But the managers of those firms are fiercely resistant to any incursions on their independence.

“The mountains are high, and the emperor is far away,” Mr. Saich said, echoing an ancient proverb that suggests that China hasn’t changed as much since the Communist Revolution as it might seem.

For all the fears elsewhere of the emergence of a powerful China, the whole world has a positive stake in its ability to develop into a successful advanced economy, according to Charles Kenny, who has published a new book, “The Upside of Down: Why the Rise of the Rest Is Good for the West.”

But it is still not clear whether China can negotiate the treacherous path from middle-income to high-income status. Beyond the economic challenge, political obstacles abound. A rising middle class inevitably seeks a larger role in decision-making. Mr. Spence doubts that officials think China immune to such pressure, but they do not yet deem the time right for moves toward democratization.

The traditional Chinese alternative has been “a rather small civil service surrounding the emperor,” he says. “It’s a meritocracy, selected by examination.” These are the talented, Western-educated officials the Lim-Spence group has come to know.

With its thousands of years of centralized decision-making, China may never resemble a Western democracy. But the elite recognizes it must sustain popular support, Mr. Spence said. “If the party does not deliver real progress to the vast majority of Chinese — it’s a very inclusive concept — they will fail.”